Lockheed Martin Poised to Win Orders for Up to 71 F-35s

Lockheed Martin Corp. (LMT) may receive a U.S. order in June for as many as 60 F-35 jets, consolidating the sixth and seven production contracts for the costliest weapons system, according to the Pentagon’s program manager

The contract may be valued at about $9 billion, according to a person familiar with negotiations between the Pentagon and Lockheed who declined to be named discussing the private talks. The number of F-35s may rise to as many as 71 if orders from other nations are included.

“We believe we can have a negotiation settlement” by May 31 “followed by final contract award in June,” Air Force Lieutenant General Christopher Bogdan, manager of the Pentagon’s F-35 program, said in prepared testimony today for a Senate Armed Services Committee panel.

The Pentagon has worked to protect the F-35 from the federal spending cuts called sequestration. Some of the money for the next group of fighters already has been obligated, sparing those funds from the across-the board reductions. Other funds may be subject to the cuts, which Air Force, Navy and Pentagon officials continue to assess.

The F-35’s estimated cost for a fleet of 2,443 aircraft has risen to $395.7 billion, up 70 percent from $233 billion in 2001 in current dollars, according to the Pentagon.

Bogdan, who has pressed Lockheed to do a better job containing costs for the F-35, said the Bethesda, Maryland-based company will absorb a greater share of any overruns than under previous contracts.

‘Worst Relations’

A contract signed in June would come about seven months after a preliminary agreement in late December. That’s far faster than the 14 months needed to negotiate the fifth F-35 contract, a pace that underscored strains between Lockheed and the Pentagon, its biggest customer. The fifth contract for 32 aircraft was valued at as much as $3.8 billion.

In September, Bogdan said relations with Lockheed, the world’s largest defense contractor, had deteriorated to “the worst I’ve ever seen.”

“It should not take 10 or 11 or 12 months to negotiate a contract with someone we’ve been doing business with for 11 years,” Bogdan said at the time.

The lessons learned should help speed the process in pending negotiations over the next lot, Marillyn Hewson, who was the company’s chief operating officer, said Dec. 14 in an interview.

Hewson, who is now chief executive officer, said “the reason why it took longer is that there was a real need to understand the cost, on both sides, from the government side, from Lockheed Martin’s side.”

‘Design Sound’

Bogdan gave a generally upbeat assessment of the F-35’s progress in his statement today.

“The basic aircraft design is sound and we can deliver on our promises,” Bogdan said. “Our progress continues at a slow but steady pace.”

Frank Kendall, the Pentagon’s chief weapons buyer, told reporters today that that “I feel much more comfortable” about the F-35 program than “I did a year and half ago.”

Lockheed Martin’s performance since a strike of its aerospace workers ended in July “has been fairly stable and the program has seen marked improvement in design stability,” Bogdan said.

Bogdan was less optimistic on development of the jet’s software. He said he had “moderate” confidence in Lockheed’s capability to deliver mid-level versions needed to train on the aircraft and give it an initial combat capability.

On-time delivery of the so-called Block 3F software that’s designed to give the F-35 full combat capability by 2017 is more at risk, Bogdan said.

Software Quality

Lockheed and its subcontractors “still need to improve both the speed and quality of software development” to “catch up from previous software delays,” he said.

Lockheed reported a first-quarter profit yesterday that beat analysts’ estimates as sales declined 2 percent compared with a year earlier. Revenue from the F-35 was “up slightly” compared with the same quarter a year earlier, according to the company. The fighter jet accounted for 14 percent of the company’s sales last year, according to a regulatory filing.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.